New Band A Tariff: NERC Orders Automatic Downgrade After 7 Days Non-performance

The Nigerian Electricity Regulatory Commission (NERC) has ordered all distribution companies (DisCos) to automatically downgrade any Band A feeder that does not enjoy the minimum requirement of 20 hours per day power supply for seven consecutive days.
This order formed part of the Service Delivery Commitments for every DisCo in line with the Supplementary Order to the Multi-Year Tariff Order (MYTO) 2024, released by NERC, with effect from April 3, 2024.

NERC also said that where the Disco fails to deliver on the committed level of service on a Band A feeder for two consecutive days, the Disco should publish on its website latest by 10 am the next day an explanation of the reasons for the failure and update the affected customers on the timeline for restoration of service to the committed service level.

“Where the Disco fails to meet the committed service level to a Band A feeder for seven consecutive days, the feeder shall be automatically downgraded to the recorded level of supply in accordance with applicable framework” NERC ordered.

The Commission also mandated each Disco to set up a rapid response team to ensure effective service delivery on the committed minimum hours of supply to each service Band commencing with Band A feeders effective from 3rd April 2024.

Recall that NERC had on Wednesday announced the approval of an increase in the electricity tariff of Band A customers from about N66 to N225 per kilowatt hour for the various distribution companies (DisCos) in the country, an increase of 240 per cent.
Vice chairman NERC, Musliu Oseni, had also emphasised that the increase in tariff will only affect customers enjoying 20 hour power supply and above across the country.

Data in the MYTO 2024 Supplementary Order showed that the new tariff was approved after due consideration of increases in economic indicators namely: 12 per cent inflation rate from 28.2 per cent in January 2024 to 31.7 12 by March 2024; exchange rate rose by 59 per cent from N919.39/$1 to N1,463.30/$1; 63 per cent generation cost from N63.8 per kilowatt hour to N103.9/kWh.
Also, transmission and admin cost rose by 34 per cent per kWh from N6.8/kwh to 9.1/kwh while wholesale gas to power prices rose by 11 per cent from US$2.18/MMBTU to US$2.42/MMBTU.

NERC also noted that while a new electricity tariff model is being adopted, customer protection is still paramount in exercising the initiative.
The commission also calculated that the newly approved tariffs, subsidies for the 2024 fiscal year are expected to reduce by about N1.14 trillion in furtherance of the federal government’s realignment of the subsidy regime.

The NERC said in pursuant to the provisions of the Electricity Act 2023, the Authority is, amongst other objects, mandated to allow a licensee operating in the Nigerian Electricity Supply Industry (“NESI”) to charge rate sufficient to recover the full cost of its efficient operation including a reasonable return on the capital invested in the business.

The determination of such rates is subject to extensive reviews, having regard to the imperative for protecting customers while allowing investors to recover sufficient revenue to incentivize investments necessary for continuous improvement in service delivery.

The federal government of Nigeria has indicated a transition in policy direction towards introducing a more targeted subsidy regime aimed at mitigating the impact of changes in macroeconomic parameters while largely protecting vulnerable customers and fostering investments targeted at providing efficient service delivery in the Nigerian Electricity Supply Industry (NESI).

The Commission said it has conducted a thorough review of the tariff applications submitted by the 11 successor electricity distribution companies in line with the processes established in our regulations and Business Rules.

The review process was preceded by an analysis of the Performance Improvement Plans of the licensees and included a public hearing during which interested stakeholders and intervenors examined the rate filing submitted by the public utilities.

The overarching objective of the Commission in the consideration of the tariff application is the creation of a financially sustainable electricity market providing adequate and reliable power supply to drive the Nigerian economy.

The Commission, upon due consideration of the tariff applications, has approved revised rates affecting only customers classified under Band A service category (about 15 per cent of the customer population); empirical service data has confirmed that this class of customers have truly received the committed level of service. Under the revised tariff Order issued by the Commission, DisCos are under an obligation to provide customers classified under Band A service category a minimum average supply of 20 hours/day measured over a period of one week.

All other customers under Band B to E service category and representing 85 per cent of customers population would not be affected by the current review of end-user tariffs.

All DisCos have been provided with mandatory targets for investments and migration of more customers to Band A service category.

With the newly approved tariffs, subsidies for the 2024 fiscal year are expected to reduce by about N1.14 trillion in furtherance of the federal government’s realignment of the subsidy regime.

The Commission has established a robust monitoring framework leveraging on technology to ensure that the public have visibility of the service covenant with their service providers. An enforcement and compensation mechanism has also been established, in the event of service failure.

“We wish to assure all Nigerians that the Commission working in collaboration with the policymakers remains committed towards providing adequate and reliable electricity to all citizens as we work diligently with state governments to deliver on the gains of the Electricity Act 2023,” it added.